GPT’s crisis over, now for the expansion

GPT Group says it has come through the worst of the property crisis and is hoping 2010 will be a year of expansion. The property group yesterday unveiled an operating income of $375.8 million for the 12 months to the end of December that was slightly ahead of expectations.

But it paid a distribution of 4.5¢ a security for 2009 and gave cautious guidance of “at least 3¢" for this year.

GPT’s core Australian portfolio delivered 3.7 per cent like-for-like income growth, which analysts said indicated a slowing but was at least in positive territory.

GPT turned around from a heavy headline loss to a small profit in the second half of 2009 – the group made an overall profit of $124.9 million as it hived off loss-making European and US portfolios.

“We’ve now got a very simple business and a very clear strategy," chief executive
Michael Cameron
said.

The result was ahead of GPT’s forecasts last May of operating income of $365 million. “We took the hard decisions and now we’re back and ready to get on with delivering some great returns," Mr Cameron said.

Mr Cameron said he wanted to continue growing the level of confidence and trust in the group.

GPT plans to complete its $470 million shopping centre development in Charlestown and progress its One One One Eagle Street office tower in Brisbane.

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The group wants to start activating the $2.4 billion development pipeline it holds across its balance sheet and managed funds. To achieve these aims it is looking to lengthen and diversify its debt facilities, and yesterday it unveiled a $600 million loan.

GPT said it wanted to grow earnings from its core business faster than inflation and wanted to deliver total returns above its weighted average cost of capital across the cycle of 8.5 per cent.

While GPT did not give earnings per security guidance for 2010 it said that overall income would be higher.

“Our realised operating income will be more than it was in 2009," Mr Cameron said.

GPT is hopeful about its core real estate portfolio. Mr Cameron said that since December 2007 the capitalisation rates on GPT’s core Australian assets had increased by 65 basis points for retail assets, 150 basis points for office buildings and 100 basis points for industrial property.

“We think we’re at the bottom of the cycle and valuations have stabilised," he said. “While 2010 will see cap rates remain stabilised, we will expect next time we report the move [in values] will probably be upwards."

After disposing of more than $1 billion of non-core properties, GPT flagged that it was under less pressure to sell remaining assets, including the Ayers Rock Resort and its US seniors portfolio. Mr Cameron said that such non-core assets would be held until the income dilution from selling them could be minimised.

He emphasised that GPT did not need to take over or merge with another property group to achieve its goals. It had not been in contact with rival and major stakeholder Stockland, he said.

Maxim Asset Management managing director Winston Sammut said the GPT result had no real surprises. “It’s still a work in progress in terms of jettisoning the remaining [non-core] assets," he said.

Mr Sammut said that the group was on the right track. “The big question mark is once they sell those assets, particularly the US assets, will Stockland make a move," he said.

Patersons analyst Jonathan Kriska said earnings had bottomed in the wake of the significant dilution from GPT’s recapitalisation – this led to a 71 per cent fall in adjusted earnings per security, he noted.

But he expressed concern about the impact of rising debt costs on the outlook.

“While GPT’s balance sheet is strong following a recapitalisation, and a new $600 million debt facility, interest costs have gone up," he said.

Goldman Sachs JBWere noted distribution a security guidance was below the consensus average and it tipped a muted response to the result because of this. It said this could reduce support from yield-seeking investors, as the stock traded at about 5 per cent, the low end of the range for the real estate investment trust sector.